In May, global demand declined, causing a drop in China's exports.
BEIJING: In May, China's exports contracted much more quickly than anticipated, and imports continued to fall. The grim outlook for global demand, particularly from developed markets, casts doubt on the fragile economic recovery.
After years of COVID disruptions, the world's second-largest economy grew more quickly than anticipated in the first quarter thanks to robust service consumption and a backlog of orders. However, factory output has slowed as rising interest rates and inflation squeeze demand in the US and Europe.
China's Customs Bureau released data on Wednesday showing that exports fell 7.5% year-over-year in May, which was significantly higher than the 0.4% decline that had been anticipated and was the largest decline since January. Imports contracted 4.5 percent, more slowly than a normal 8.0 percent decline and April's 7.9 percent fall.
According to Zhiwei Zhang, chief economist at Pinpoint Asset Management, "The weak exports confirm that China needs to rely on domestic demand as the global economy slows." Due to the likelihood of further weakness in global demand in the second half, there will be increased pressure on the government throughout the remainder of the year to increase domestic consumption.
The data show that trade was worse even than when China's busiest port, Shanghai, was closed due to strict COVID restrictions a year earlier, highlighting the severity of the problem.
The figures also add to a growing number of indicators that suggest China's economic recovery after COVID is rapidly losing steam, supporting the need for additional stimulus from policymakers.
After the data, demand squeezed Asian stocks as well as the commodity currency yuan and the Australian dollar, which is highly sensitive to changes in Chinese demand.
Amid a sluggish economic recovery, small-time investors have become bearish on stocks and have increased their focus on safer assets instead of China's post-pandemic stock rally.
Both domestic and international weakening of demand have hurt the economy, which has spread throughout the region.
Last week, South Korean data showed that shipments to China fell by 20.8 percent in May, marking a full year of monthly declines. Additionally, Korean semiconductor exports fell by 36.2%, indicating weak demand for final manufacturing components. As the market for consumer electronics exports that include such components weakened, Chinese imports of semiconductors decreased by 15.3%.
Interest in natural substances extensively debilitated with coal imports pulling back from the 15-month high hit in Spring, amid delicate hunger from the power and steel areas. In May, copper imports fell 4.6% from a year earlier.
Last week, China's official purchasing managers' index showed that factory activity fell faster than expected in May, that factory output swung from expansion to contraction, and that new orders, including new exports, fell for a second month.
Even though economic growth exceeded expectations in the first quarter, as factory output slows, analysts are now downgrading their predictions for the remainder of the year.
After severely missing the target for 2022, the government has set a modest goal for this year's growth of the gross domestic product of around 5%.
According to Capital Economics' head of China economics Julian Evans-Pritchard, "Looking forward, we think exports will fall further before bottoming out later this year."
“Although interest rates outside of China are close to a peak, the lagging effect of the sharp rate hikes is expected to weaken activity in developed economies later this year, triggering mild recessions in most cases,” the article states.
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